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Recursive Thick Modeling and the Choice of Monetary Policy in Mexico

Author

Listed:
  • Arnulfo Rodriguez

    () (Economic Studies Division Bank of Mexico)

  • Pedro N. Rodriguez

    (Universidad Complutense de Madrid)

Abstract

By following the spirit in Favero and Milani (2005), we use recursive thick modeling to take into account model uncertainty for the choice of optimal monetary policy. We consider an open economy model and generate multiple models for only the aggregate demand and aggregate supply. Models are constructed by matching the rankings of aggregate demand and aggregate supply and adding other specifications for the rest of the variables. The main results show that recursive thick modeling with equal and different weights approximates the recent historical behavior of nominal interest rates in Mexico better than recursive thin modeling

Suggested Citation

  • Arnulfo Rodriguez & Pedro N. Rodriguez, 2006. "Recursive Thick Modeling and the Choice of Monetary Policy in Mexico," Computing in Economics and Finance 2006 30, Society for Computational Economics.
  • Handle: RePEc:sce:scecfa:30
    as

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    File URL: http://repec.org/sce2006/up.21601.1137547841.pdf
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    References listed on IDEAS

    as
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    2. Martin Eichenbaum & Charles Evans, 1992. "Some empirical evidence on the effects of monetary policy shocks on exchange rates," Working Paper Series, Macroeconomic Issues 92-32, Federal Reserve Bank of Chicago.
    3. Glenn Rudebusch & Lars E.O. Svensson, 1999. "Policy Rules for Inflation Targeting," NBER Chapters,in: Monetary Policy Rules, pages 203-262 National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    model uncertainty; optimal control; out-of-bag; thin modeling and thick modeling;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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